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Signs of Life

If you remember when an instant photo involved a bit of whirring, kerchunking and the spitting out of a thin packet of chemicals, you will have some sense of the dynamics behind LIMRA’s latest round of buyer behavior and ownership data.

The maker of that camera was Polaroid, a prime example of how rapid displacement in the economy is changing a way of life for longtime employees.

Kimberly Harding saw Polaroid crumble from its status as a “juggernaut of innovation” to a victim of innovation. As an insurance agent and financial advisor just north of the company’s hometown of Boston, Harding knew families that lost the many layers of protection they had built up after decades working for Polaroid.

That trend means more families are losing group life insurance, among other things. Although the percentage of households with individual life insurance held steady at 44 percent in the study, “Life Insurance Ownership in Focus”, those with group life coverage dropped to 46 percent in 2016, down from 49 percent in 2010.

In the case of Polaroid, Harding was able to help its employees after the company declared bankruptcy in 2001 but before the company closed much of its operations in 2008.

“Thankfully, we were able to get them insurance before they lost their job at Polaroid,” Harding said. “So the only coverage they had was what they had with us. We had other clients who were uninsurable and were dependent on that coverage and lost that. So, think about that. They lost their pension. They lost every benefit that they had had. They lost their stock. They lost everything. Then on top of it, they lost their life insurance. So how does that affect a family? It’s pretty significant.”

That financial disruption radiated throughout the 2000s, erupting with the economic crash of 2008, which shook the usually solid insurance industry.

Jim Scanlon, senior research director at LIMRA,
said the crashes of the 2000s led to the first drop in household ownership of life insurance, detected by a 2010 survey. But the latest study found a silver lining in that bad news, because the industry saw insurance ownership grow 5.6 percent since 2010 and recoup the losses by 2016.

“That really does speak volumes about the life insurance industry,” Scanlon said. “The financial crisis wasn’t simply an economic recession. It was a true crisis within the financial industry. People were very concerned that it was going to shake consumer confidence in a number of financial institutions. But the comeback in ownership volume shows that there is true consumer demand for this product.”

That silver lining still has a whole lot of black cloud around it, though. Fewer households have both individual and group life insurance. The percentage of households owning both types of coverage has been dropping since 1984, when 43 percent of households with life insurance had group and individual. By 2016, that overlap slumped to 29 percent.

Along with the drop in dual ownership, the level of coverage overall also declined. The dual-owner households had the highest number of income replacement years, 3.6. But even in the dual-owner group, the years declined by 1.2 years since 2010.

Shifting Market Shifts Products

The declining trend already was making life difficult for insurance companies, when along came the Department of Labor’s (DOL’s) new fiduciary regulation. The rule affects primarily annuities sold with money coming from retirement accounts, but it caused companies to reevaluate their overall business.

An indirect effect was that many companies with a significant fixed indexed annuities business shifted emphasis to indexed universal life. That movement has helped propel IULs to record sales, the one bright spot besides whole life for the industry.

Voya is one of those companies making that shift. In fact, the company decided last year to stop selling term life and focus on IUL. In the first quarter of 2017, Voya’s IUL sales increased 24 percent over 2016’s first quarter, according to the company.

“We have shifted our direction toward indexed universal life,” said Chad Tope, Voya president of annuities and individual life distribution. “We are no longer in the term business. Primarily, it’s the expense drag you get with term. You have to drive the scale where expenses are high, and that wasn’t the market we wanted to play in.”

Smaller companies also are turning to IULs to avoid some of the issues with FIAs in the DOL rule. Even though the rule is likely to undergo significant changes, companies have already started recalibrating their approaches.

Paul Garofoli, vice president of National Western Life, said the ever-changing prospects on the DOL rule make an already difficult compliance challenge harder.

“Trying to comply is basically trying to change the tires of a moving car,” Garofoli said.

Garofoli is responsible for working with marketing organizations, which have been all too happy to have an alternative to FIAs that had a similar marketing message.

“I’m seeing agencies that I’ve been trying to persuade to evangelize, if I can use that metaphor,” he said, “and now they’ve found religion.”

Another growth area for National Western — and across the industry — is accelerated benefit riders.

They are an attractive option for Americans who are realizing that they are more likely to live long and encounter disability than die young.

“The potential for somebody over their life span to have either a temporary disability or permanent disability requiring home health care or facility care is in excess of 60 percent,” Garofoli said. “The older you get, the more likely this is.”

Distribution, Demographics

The rise of long-term-care riders and other accelerated benefit riders coincides with an aging baby boomer population with ever-increasing longevity and fewer resources than their parents had in facing their later years. That is one of many demographic shifts that have carriers and advisors rethinking their markets and approach.

According to Scanlon of LIMRA, although the U.S. population is expanding, it is diversifying in ways that make it difficult to reach consumers with an effective life insurance message. A key shift is the growth of single-person households. But another trend, growing cultural diversity, is also adding opportunity.

Voya and other large insurers are betting on a multicultural strategy to keep up with that growing diversity. Smaller companies like National Western don’t have the same kind of market coverage to select segments. They are focusing on recruiting and developing the fewer agents who remain in the field.

“The LIMRA data revealed that there is a big insurance gap,” Garofoli said. “The reality of our world is that the number of agents is decreasing while the number of people who need our products and services is increasing. So not only is there an insurance gap, there’s really a delivery gap as well.”

One of the advisors Garofoli works with is doing his part in growing the next generation of advisors who value life insurance. This advisor’s partner grew up with an appreciation for the business because she is his daughter.

Family Protecting Families

Bill Porter is a principal at Aileron Investment Advisors north of Atlanta and has 44 years in the business. Because the firm has focused on pre- and current retirees, he finds many of his longtime clients are dying off.

Often when clients pass, if an advisor has not had much recent presence with the family, the next generation will walk away from their parents’ advisors.

But Porter has insurance against that — his daughter, Cindi. She is a certified financial planner and picks up with the next generation even before they see the need to talk to an advisor.

“Let’s face it, none of us is getting out of here alive,” Porter said. “All of our clients are going to pass on at some point, and many of them have. After all, we deal with retirees and preretirees. But we don’t want to meet their kids for the first time after Mom and Dad have passed away.”

Not only is there an incentive for Porter’s agency to bring the next generation on board, but his clients who are parents also recognize when their kids need help.

“Many of our clients will say to us, ‘Could you possibly talk to Jimmy and his wife, Mary Lou? They really need some help,’” said Porter, who has taught courses on estate planning and taxation. “A lot of it is done long distance because the kids don’t always live in the same city as their parents anymore. And when you can generate leads from parents to their adult kids, that’s a whole lot more of a weight for the kids on the other end.”

After generations in business, Porter’s agency can rely on self-perpetuating referral business. But that does not mean that advising and selling are getting easier.

Just as LIMRA pointed out that older people are becoming more likely to live alone, Porter said younger people also are changing how they set up house.

“The younger generation right now is delaying marriage,” Porter said. “Lots of them are not even thinking about it until they’re in their 30s, which really has put a little bit of a damper on life sales.”

Student debt and other factors might be delaying marriage, Porter said. But he also noticed another trend that could explain the hesitancy — and also could indicate opportunity.

“More times than not, the millennials are less risk-takers than the moms and dads are,” Porter said. “They’re starting to save a little bit better than the generation before them. I think it’s a great opportunity as a group of people to go talk to for the products that we have. I think they’d be very open to it.”

But the longer they wait to obtain coverage, the more insurability issues they will run into. That’s another reason Porter said it is important to start the conversation with the succeeding generations earlier.

Because he and his daughter have equities licenses, they can have a conversation about investing that can include insurance as part of the package.

“And if you have to sort of legitimize the conversation about insurance, that’s part of your job,” Porter said. “It is to make sure that they’re having a serious, cover-all-the-bases conversation about what’s going on.”

Making the Big Ask

Once the subject of life insurance is broached, then there is the issue of adequate coverage. There isn’t one metric for it. Some start with expected expenses, and others use a rule of thumb based on salary —
maybe as much as 10 times annual salary.

LIMRA recommends about 5.5 years of income replacement, which the association calls a very conservative number. The reasoning is that a family would need seven years of income replacement at 75 percent.

But even given that conservative goal, LIMRA found that half of American households — 60 million families — have a coverage gap of $200,000 on average.

That gap totals $12 trillion. Americans have about $26 trillion in coverage right now.

Harding, the advisor from the Boston area, and her husband, Ben, work as fee-based planners at Harding Financial and Insurance. Financial advisors might be reluctant to recommend the higher-
than-expected coverage that people actually need. But Harding said it is a natural part of the fact-finding process.

“Early in my career,” Harding said, “I would hear [agents] ask, ‘How much can you comfortably set aside to handle this life insurance problem?’ I never ask that because they have no idea. They’re going to tell you what they want to spend, not what they should be spending.”

Instead, she leads clients through a survivor needs analysis.

“I walk them through what they want to have happen in the event they pass away,” she said. “Frankly, I tell them to ignore any coverage they have. Let’s figure out what that number is. Work coverage — I ignore that. They can’t be dependent on that in the event that they lose it and then lose their insurability.”

Harding adds up the final expenses, eliminating the mortgage and other debts, education fund, child care expenses, and emergency fund, and then replace income. When she totals the immediate and ongoing needs, clients have a better sense of why they need a significant amount of coverage.

“They’re not as floored as if I didn’t do that analysis,” Harding said. “If I just did the simple ‘Here’s how much you make and let’s multiply it,’ then they would be floored. I explain, ‘We’re not making anybody rich here. We’re just making sure that your family can get by — period.’ ”

As a result, clients don’t reject the number, because it is more a realization than a recommendation. And because the number is a part of a greater holistic assessment of the client’s financial condition, an advisor would be in the prime position to know if the client could afford the coverage.

“You’re not going to let them dictate what amount of coverage and what the price is going to be and what they’re willing to spend,” Harding said. “You’re going to find the dollars to make sure their family is protected.”

The recommendation is often a mix of term and permanent insurance. A greater proportion of term is suggested for younger people because of a larger need and fewer dollars to spend.

“But I also believe that every single plan should have something permanent,” she said. “At this stage of my career, I’m losing a lot of clients who are in their 60s and 70s. People think when they’re in retirement they don’t have a need for income replacement, but they do. They have Social Security, and that Social Security of that deceased spouse is gone forever.”

And it isn’t just that people are forgetting they have income to recoup, but they also are more likely to carry debt far longer these days.

“We’re finding people are having mortgages longer than they had anticipated because they took a home equity loan or they helped with education,” she said. “There are more debts that people have forever. So I believe there is a permanent need for everybody.”

What Motivates Buyers?

Snail mail works — that’s one of the surprising results from LIMRA’s latest “Buyer-Non-Buyer Study.”

Consumers said direct mail made the strongest impression on
their need for life insurance. Attracting 23 percent of the respondents, it was well ahead of No. 2, calling or visiting a financial professional, which was cited by 15 percent of respondents. That was followed closely by speaking with a friend, colleague or relative at 14 percent, and it dropped off to 10 percent for No. 4, which was email.

The survey also showed a gap between the number of consumers who recognize their need for life insurance and those who go get it. Over a 24-month period, 25 percent of the households saw that they needed life insurance, but only 15 percent actually shopped for it. Of those, 11 percent obtained quotes and 7 percent bought coverage.

Even in the second phase of the sales funnel, only 26 percent talked to a financial professional. But when they did, it was effective, because 82 percent said they found it helpful.

They were more likely to make it to the third phase, the quote. About 60 percent of the consumers obtained two or three quotes, and 25 percent got one.

About two-thirds of the people who obtained a quote ended up buying something in stage four. Sixty-three percent reported buying term insurance. Thirty-five percent reported buying permanent life insurance. The rest didn’t remember exactly what they purchased.

The list of reasons consumers did not buy is a familiar one: "I already have enough life insurance," "I have other financial priorities right now," "I can't afford life insurance," "I prefer to put my money in other financial products."

The reasons are well-known to experienced advisors accustomed to dealing with consumer objections.

“Absolutely, the quality of the salesperson makes the difference,” said Jim Scanlon, LIMRA senior research director. “Agents are still very effective at retaining people through the process.”

Repaying It Forward

Porter carries a debt himself. He acquired it early in his career, and he has been trying to pay it off ever since.

He will sometimes encounter people who have a vague wariness of insurance that they can’t seem to overcome. Often, it is a result of an anecdote or a headline.

“But if you grill the person, they don’t really know,” Porter said. “It’s ‘Oh, I’ve just heard some things about life insurance.’”

The temptation for an advisor may be to back off and allow clients to reconsider at a later date. But Porter has a reason that he is not likely to let the issue go.

“It was my first year in the business, which was 1973, somewhere in there,” Porter recalled. “I’d been talking to a couple I didn’t know well. And the husband asked me about life insurance. So I got him some quotes, showed them to him and he said, ‘Well, yeah, I’ll think about that.’”

Porter was still tentative at that stage of his career, so he didn’t want to bother the husband and let time pass. The man died soon after.

“Mary came knocking on the door one Saturday morning. She said, ‘When John died, I know he had been talking to you about life insurance. Bill, tell me what I’ve got,’” Porter said, and paused as he was recalling the episode.

“It’s kind of breaking me up right now, just telling the story,” he said. “I had to tell her, ‘He didn’t make a decision. So there is none.’ And I remember her slamming the door and leaving.”

Porter didn’t have a problem ever again with telling anyone else that they needed life insurance.

“That was devastating to me. It was real life, real kids,” Porter said. “And so, when all’s said and done, we’re on a mission out there. A lot of times, it just seems like we’re making a living. But we’re also making other people’s lives work, even when they don’t make it.”

Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. Steve may be reached at [email protected] Follow him on Twitter @INNSteveM. [email protected].